In the fiscal year 2021-22, the per capita income of Bangladesh is $2,824, while India’s per capita income is $2,318. For the first time in 2020, India fell behind Bangladesh in per capita income. That year, India’s per capita income was $1,929 against Bangladesh’s $1,962 per capita income. In other words, in the last two years, Bangladesh has increased the per capita income gap with India by more than $500. However, India’s per capita income in 2007($1,028.3) was almost double that of Bangladesh ($558.1). Along with per capita income, Bangladesh’s GDP per capita ($2,154.2) surpassed India’s GDP per capita ($2,072.2) in 2019. Once known as one of the poorest countries in the world since independence in 1971, Bangladesh has surpassed India, the world’s 6th largest economy, in several economic and social indicators in the last 50 years. But how exactly has Bangladesh been able to move ahead of India?
Overview
Apart from surpassing India in economic indexes like GDP and per capita income, Bangladesh has also left India behind in the GDP growth rate. According to the World Bank, where India’s GDP growth was 8 percent in 2015, it became -6.6 percent in 2020. On the other hand, at the same time, Bangladesh consistently maintained a GDP growth rate of 6 to 7 percent. Although it dropped to 3.4 percent in 2020, it reached 6.9 percent again in 2021. Apart from economic indexes, Bangladesh has surpassed India in various social indices. For example, according to UN Sustainable Development Goals or SDG Index, Bangladesh is currently ranked 104th with a score of 64.2, while India is ranked 121st with a score of 60.32. In 2020, the infant mortality rate in Bangladesh was 29 per thousand, while in India, it was 33 per thousand. Besides, the literacy rate among 15 to 24-year-olds is 94.5 percent in Bangladesh which is 91.5 percent in India. Again, Bangladeshi women are ahead of Indian women in education.
On the other hand, 30.4 percent of women of the total population in Bangladesh are working in various occupations, while in India, the rate is only 20.3 percent. Moreover, in 2019, Bangladesh had an average life expectancy rate of 74 years, while it was just 60 years in India. Furthermore, Bangladesh ranks 7th out of 117 countries in the Global Hunger Index, whereas India ranks 101st.
Besides, Bangladesh ranks 2nd in the world after China regarding RMG exports, and India ranks 4th. While India exported RMG worth $16 billion in FY 2021-22, Bangladesh’s exports amounted to $43 billion. According to an article in the Times of India, over the past decade, Bangladesh’s IT export earnings have increased from $800 million to $5 billion, which is equivalent to India’s $35 billion in terms of population. However, the journey of the IT industry in Bangladesh started much later than in India. But how has Bangladesh achieved such success so quickly, and what factors have played an important role in moving forward?
How Bangladesh is Beating India?
Microfinance
After independence, Bangladesh was one of the poorest countries in the world. In a war-torn country, foreign aid and loans for food, clothing, and medical care were helping but weren’t a lasting solution. Due to this, various companies started working to rehabilitate the country’s people and started giving small credit or loan facilities. Micro-credit organizations provided small loans to rural women for various financial development activities, including raising livestock and small and cottage industries. These people were far from the reach of banking services, but these financial development activities through such micro-credit changed their overall financial condition. As a result, families become more involved in various financial activities and spend more on nutritious food and education for their children. According to the research paper “The macro impact of microfinance in Bangladesh: A CGE analysis”, micro-finance activity has contributed about 9% to 12% to the country’s overall GDP.
On the other hand, according to the book “Beyond Ending Poverty: The Dynamics of Microfinance in Bangladesh”, micro-credit activities in the two decades from 1990 to 2010 lifted 10 percent of Bangladesh’s rural population or about 2.5 million people out of poverty. Nowadays, Bangladesh is one of the fastest-growing economies in the world. According to the latest ADB, in 2019, Only 20.5 percent of the total population of Bangladesh was living below the National Poverty Line.
Migrant Worker
The remittances sent by Bangladesh’s expatriate workers are another factor behind its current economic development because it’s one of Bangladesh’s most significant sources of foreign exchange earnings. Remittance is the second largest contributor to the country’s foreign exchange earnings after RMG. There was no job opportunity in war-torn, newly independent Bangladesh due to extensive damage to agricultural land, factories, and roads. According to the Bureau of Manpower Employment and Training, Bangladesh officially started sending workers for overseas employment in 1976 when there was a massive demand for skilled and unskilled labor due to the discovery of oil mines in the Middle East in the 1970s. That year, around 6,078 migrant workers were sent to the Middle East and several other countries, including Saudi Arabia. Since then, the number of migrant workers sent from Bangladesh has risen yearly. The remittances sent by these workers have contributed to changing their family’s fortunes by improving financial conditions. According to Bangladesh Bank, the inflow of total remittances in FY 2021-22 was $22 billion, which is 6.2 percent of the country’s GDP.
On the other hand, according to a TBS News source, migrant workers in Bangladesh send about $40 billion or more every year. However, out of this amount of $22 billion in formal or banking channels, almost twice as much money came to Bangladesh through informal channels or hundi and other means, which has also contributed to the country’s overall economic development. In addition, according to a BBC source, about 2 million Bangladeshi workers are living in 162 countries through government and private channels.
Ready Made Garments
The country’s RMG or Ready Made Garments sector contributes the most to Bangladesh’s foreign exchange earnings. The RMG sector in Bangladesh started in the 1960s, but exports began in the late 1970s. In the early ’80s, various foreign companies started setting up RMG factories in Bangladesh. At that time, the government established EPZ for the sector’s growth and started providing tax holidays to foreign investors for ten years. In addition, the number of garment factories in the country is increasing rapidly due to initiatives such as issuing duty-free import licenses for machinery and raw materials import, bonded warehouses, and back-to-back LCs for 100% export-oriented garment facilities. As a result, export earnings from RMG continue to grow every year, and in the early 1990s, the sector started earning 50 percent of the country’s total export earnings.
In FY 2020-21, Bangladesh exported RMG products worth over $31 billion and is second only to China worldwide. According to the Export Promotion Bureau, Bangladesh’s total RMG exports amounted to about $42 billion in FY 2021-22, about 81 percent of the country’s $52 billion export revenue. The sector is now the source of livelihood for more than 42 lakh people in Bangladesh, of which 12.5 percent of the country’s total female workers or 25 lakh female workers are working in this sector, where the number of male workers is just over 17 lakh.
Leather Industry
Leather and Leather Goods is the second-largest export earning source in Bangladesh. Currently, 10 percent of the world’s demand for leather is exported from Bangladesh. In the FY2020-21, the total revenue from leather industry exports was $941.67 million, or a little more than 2% of total export earnings (2.43%), including $119 million in leather, $252.56 million in leather and leather products, and $569.7 million in leather shoes. According to a report by EBL Securities LTD, 350 million square feet of leather is produced in Bangladesh every year, with only 20 to 25 percent meeting local demand, with the rest being exported. Bangladesh ranks 8th in the world in leather shoe exports. According to the Leather goods And Footwear Manufacturers & Exporters Association of Bangladesh, there are currently 200 tanneries and 3,500 MSMEs in Bangladesh.
On the other hand, the sector has 2500 footwear units and 90 large firms producing footwear & footwear components and contributing a large part to the leather industry. Even in 2020, the estimated size of the local footwear market in Bangladesh was around Tk 17,000 crore. According to LFMEAB, Bangladesh’s leather industry employs about 850,000 people, 60 percent of whom are women. By meeting the country’s demand, this sector is saving a lot of money for Bangladesh, providing employment opportunities to the country’s people, and earning foreign exchange for the country. Given this, the government has planned to set up two more leather industry parks in Rajshahi and Chittagong to develop this sector, which will also help increase the volume of exports in the future.
Electronics
Bangladesh people’s purchasing power has increased due to the increase in per capita income, which has improved the quality of life and increased the use of electronic products and home appliances. Currently, the size of the consumer electronics market in Bangladesh is around Tk 20,000 crore. Even at the beginning of the first decade of the 21st century, the consumer electronics market in Bangladesh was 100% import-dependent. But now, various domestic brands are meeting the demand of this country’s people and exporting products abroad. Now companies like Walton, Marcel, MyOne, and Vision are making almost all types of home and kitchen appliances in the country, including television, AC, fridge, oven, toaster, blender, and mobile. With the reduction in export dependence, Bangladesh has saved a lot of foreign exchange.
At the same time, with the increase in export trade, the possibility of foreign income for Bangladesh is also increasing. Meanwhile, international brands are setting up production facilities in joint ventures with Bangladeshi companies to compete with local brands. As a result, foreign direct investment in the country is increasing foreign currency inflows and creating new employment opportunities.
Agriculture
One of the growth drivers behind the current economic growth of Bangladesh is food self-sufficiency in the country. Bangladesh ranks among the top 10 countries producing nine crop types, including paddy, wheat, and maize. At present, the net food production of Bangladesh is 4.55 crore metric tons. At the time of independence, Bangladesh’s total cultivable land area was 21.8 million hectares. It has decreased by 80% in the last five decades, but per capita food consumption has increased from 456 grams to 687 grams. Since the war of liberation, Bangladesh Rice Research Institute has been working with new varieties of fast-growing rice to bring the country out of the food crisis. In this context, Bangladesh has been self-sufficient in rice production since 1999. Currently, Bangladesh is the third-largest rice producer in the world, and in 2021, Bangladesh’s total rice production was 37.8 million tons. Besides, Bangladesh ranks sixth in potato production and third in vegetable production.
In addition, the production of fruits has increased by approximately 2 million tons in the last decade, and at present, about 12.3 million tons of fruits are being produced in Bangladesh from domestic and foreign varieties. On the other hand, Bangladesh has also made significant progress in producing cattle, poultry, and fish to meet the demand for meat of the country’s people. Various government development activities have contributed immensely to making Bangladesh self-sufficient in food production. These include providing easy loans to help farmers in their production activities, providing multiple agricultural subsidies and allowances, including fertilizers and diesel, research on high-yielding varieties of seeds, and distributing them free of cost to farmers.
Infrastructural Development
One of the reasons behind the current economic development of Bangladesh is the various infrastructure development projects. In the ten years from 2009 to 2018, 276 infrastructural development projects have been completed, and 341 new projects have been started. Under these projects, developing a communication system with the capital Dhaka from different parts of the country and upgrading the national highway from Dhaka to the port city of Chittagong into four lanes is particularly noteworthy. As a result, it has become possible to bring the products produced in different parts of the country to Dhaka in less time, transport them from Dhaka to Chittagong port quickly, and export them abroad. In addition, several mega projects are underway to keep pace with the country’s growing import-export trade, and several are on the verge of inauguration.
The Padma Bridge has established direct road links with 19 districts in the country’s southwest districts with other regions. As a result, trade between these regions and other regions of the country is increasing. According to the World Bank, the Padma Bridge will contribute 1.7 percent to the country’s GDP growth in the southwest and 0.56 percent to the country’s overall GDP. In addition, several flyovers have already been constructed in Dhaka to reduce traffic congestion and increase the amount of dynamic and productive hours in Dhaka. Also, projects like Metrorail and Elevated Expressway are underway. In addition, from 2009 to 2022, the country’s power generation capacity has increased from 4,942 MW to 25566 MW, and it has been possible to bring 100% of the country’s population under electricity. In the last 12 years, 5 new gas fields have been discovered in Bangladesh, of which natural gas production has increased from 1556 million cubic feet to 3300 million cubic feet. Overall industrial growth in Bangladesh has been further accelerated due to the increased gas and electricity production. To sustain this industrial growth, the government is planning to create 100 economic zone across the country.
In addition to these physical infrastructures, the government has also worked to provide internet connectivity across the country. As a result, there are already 12 crore internet users in the country. With the internet development in the country, significant progress has been made in the country’s IT sector, including e-commerce.
Basically, all these factors together have played a big role in reaching the current economic situation of Bangladesh.
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